A leading think tank in the U.K. has said it will not just be the 2015 election that hinges on austerity measures but the 2020 one too.
A study by the Institute for Government (IfG) and the Institute for Fiscal Studies (IFS) says that the U.K.'s financial consolidation was taking longer than predicted by the Chancellor, George Osborne, when he took office in 2010. The report states, "We are still as far away from the target as we were in 2010. Indeed, it would not be surprising if not just 2015 but also 2020 was an 'austerity' election."
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While the study is critical of the time it is taking for the government to reduce the deficit - saying "this plan has been blown off course - it applauds the administration for sticking to its plan in the face of popular discontent and anti-austerity rhetoric in Europe.
While spending as a share of GDP has increased under Osborne, the report says this is not through the government actually spending more than before. "The problems for the consolidation have come through a lack of growth in the economy, resulting in lower than expected tax revenues," the report says. "This means spending as a share of GDP is higher than planned – even if the cash level of spending is as expected – which is why the Chancellor is imposing a further round of spending cuts on departments."
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While the IMF has criticized U.K. austerity for its impact on the country's growth, the study says what is important for the U.K. economy is that the government remains committed to sustainable cuts and continues its momentum.
The report says that the U.K. should look to Canada's example when it comes to financial consolidation. Canada imposed substantial spending reductions from the 1980s onwards and there were a series of failed attempts at reaching a financially stable position. It was not until the late 1990s that Canada finally experienced a budget surplus.
"Spending reductions are set to be along-term feature of U.K. public finances, rather than a short and sharp experience. When the Chancellor stands up to speak on 26 June 2013 will he be frank about the long-term reality of austerity?"